Iranian politics in 2006 were deeply affected by a continuing confrontation with the International Atomic Energy Agency (IAEA) and the Western world, which demanded that Iran eschew development of uranium enrichment in its nuclear program. The situation deteriorated in January when Iran ended a moratorium on nuclear research agreed upon earlier with the European Union. The Iranians claimed the program was for peaceful purposes and did not contravene the Nuclear Non-proliferation Treaty. An EU delegation negotiating the Iranian nuclear issue reacted by suspending talks with Iran and proposing a referral to the UN Security Council. On January 10, IAEA seals on a research unit were broken and a small centrifuge installed. Meanwhile, Iranian negotiators endeavoured to divert the Europeans from involving the Security Council. Iran offered continuing but restricted research on uranium enrichment, but the UN body on March 29 called for Iran’s full compliance with IAEA requests.

Pres. Mahmoud Ahmadinejad announced on April 11 that Iran had successfully enriched uranium. Iran’s unilateral action exacerbated international outcries in view of his declaration in the fall of 2005 that Israel should be “wiped off the face of the world.” His letter in May to U.S. Pres. George W. Bush aiming to resolve the nuclear issue induced EU foreign ministers to offer the Iranians aid in their atomic research program if enrichment of uranium ceased. On May 31 U.S. Secretary of State Condoleezza Rice indicated the U.S.’s willingness to participate with the EU in direct negotiations with the Iranian government if this proviso was accepted. Representatives of the five permanent members of the Security Council met in June to examine how Iran might be induced to refrain from developing atomic weapons capability. Iran responded positively to the offer together with the U.S. presence. Ali Khamenei, the Iranian spiritual leader, encouraged hopes of an accord by declaring that “we do not have any aspiration for a nuclear bomb.”

The July war in Lebanon and the possibility of again being referred to the Security Council precipitated Iranian resistance to a settlement and a return to antagonism against the U.S. arising from frictions caused by the Iranian-sponsored Hezbollah military campaign in southern Lebanon. A dialogue was maintained with the EU in the hope that negotiations could continue.

The Security Council deadline of August 31 for Iran to have ceased uranium enrichment was ignored. By then Iran was convinced that the U.S. was enmeshed in a deteriorating situation in Iraq and an extended commitment to Afghanistan as well as damaged by the ambiguous outcome of the war in Lebanon and therefore would not contemplate opening another front against Iran.

Iran’s nuclear crisis quickly became a wider debate on overall Iran-U.S. relations. Ambivalence on both sides remained, although tokens, such as former president Mohammad Khatami’s private visit to the U.S. in August and September, were taken by many Iranians to suggest that the U.S. was not averse to a general settlement. By September the Iranian view—possibly overconfident—was that the problems of the U.S. in Iraq and disunity among permanent members of the UN Security Council gave Iran the whip hand enabling it to make political gains without making concessions on its nuclear program. (SeeSpecial Report.) Following the imposition on December 23 of UN Security Council sanctions on Iran’s goods and technology related to its uranium-enrichment and ballistic-missile programs, the Iranian parliament voted (161–15) to limit Iran’s cooperation with the IAEA.

Other foreign policy concerns included the situation in Iraq and the Shiʿite-Sunni divide that hardened across the Middle East. Iran took a moderate stance on the war in Iraq, albeit supporting the Shiʿite position. There was a demand to end U.S. occupation but little evidence of Iranian interference in Iraqi affairs. The resurgence of the Taliban in Afghanistan was unsettling for the Iranians. The successful Iranian support of Hezbollah in southern Lebanon added to Iran’s reputation as a regional force. Relations with the Arabian Peninsula states suffered from sectarian rivalries and Arab fears of a militarily resurgent Iran.

In domestic politics the propensity of President Ahmadinejad to make stark Islamic announcements on policy did not sit easily with the other established authorities. The wide spread of powers inside the republic and the constant turmoil of groups seeking to gain influence permitted the president only limited room for maneuver, but his populist image attracted widespread general support. He was, however, attacked for his poor economic policies and the persistent unemployment rate of 15%. He was blamed for a flight of capital from Iran of $100 billion in the Iranian year 2005–06.

In 2006 economic growth was modest at 5.4%, and GDP was estimated at $242.2 billion. Oil revenues were forecast at $55 billion from an output that averaged 3.85 million bbl a day. Intractable difficulties in curbing inflation of 18% were experienced as the impact of high oil revenues was felt. Iranian foreign-exchange reserves were put at $47.6 billion by the central bank. Imports boomed, reinforced by the overseas purchase of over half of the country’s gasoline requirements.

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